Great blog posts about macroeconomics

Federal Reserve Decides to Leave Interest Rates Unchanged

In a meeting on Wednesday May 3rd, central bank officials voted not to raise interest rates, leaving their target rate at 0.75-1.00%. The Fed cited slow growth in the past quarter (0.7% real GDP growth) as the main reason for holding their ground, and reiterated a statement they made in March that showed confidence in the growth rate increasing later this year after getting off to a slow start.

In addition to GDP growth, inflation numbers also made officials skeptical about raising rates. Although inflation in the last twelve months has been close to the Fed’s target of 2%, measures that exclude food and energy prices (which can change very quickly and are considered quite volatile) showed inflation to be significantly lower.

Fed officials also did look to the future when making today’s announcement. Although they chose not to raise the interest rate this month, their statement indicated that it would be safe to expect the interest rate to be raised two more times by the end of this year, with the next hike most likely coming in June.

Probably a good choice on the part of the Fed. As for there 2% inflation target, it should be pointed out that this is roughly the 9th straight year of inflation rates below 2%. They certainly haven’t been very good at hitting their target.

Nice work Matt! It is interesting that the Fed has been trying to hit their target for so long, but has not done it. I wonder if they will raise rates in June or if they will once again miss their target and leave rates unchanged.